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Michael Porter Five Forces Model

Michael Porter Five Forces Model

Highlights by David Willden

Michael Porter provided the five forces model that identifies the most powerful driving forces within industries. These key forces are:

  • Threat of new entrants
  • Bargaining power of suppliers
  • Bargaining power of buyers
  • Threat of substitute products or services
  • Rivalry among existing competitors


Threat of New Entrants

There is always the possibility that incumbent or new firms will compete in the industry. There are barriers to entry for these firms that include:

  • Purchasing economies of scale
  • Developed channels
  • Government regulation
  • Patents and proprietary knowledge
  • Assets
  • Competitor retaliation

Bargaining Power of Suppliers

If suppliers are powerful, they can exert considerable influence. Suppliers are in a strong position when:

  • There is a significant cost to switch suppliers
  • The power of suppliers tends to be a reversal of the power of buyers
  • The suppliers brand is powerful
  • The supplier may want to enter your market
  • Customers are fragmented (not in clusters) so they have little bargaining power

Bargaining Power of Buyers

  • There are few buyers with significant market share
  • Buyers buy most of the distribution
  • Buyers desire to purchase rival firm

Threat of Substitute Products or Services

  • A substitute product replaces an existing product. For instance, Blu-ray DVD players will replace convention DVD players.

Rivalry Among Existing Competitors

Most industries and competitors within the industries are attempting to grow or maintain their market share. Tactics used to do this include: 

  • Reduced prices
  • Increased advertising
  • Differentiating

Detailed Diagram of Five Forces

Source: http://farm5.staticflickr.com/4098/4745487755_664668de2d_z.jpg

Michael Porter Five Forces Model

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